myICLUB Blog

The current equity network continues to broadcast mixed signals. The US economy is strong, especially in the labor market, which brings some optimism. Strong employment figures reveal consumer strength, a vital part of economic growth. However, geopolitical uncertainties, including the ever-shifting tariff morass, create ongoing concerns for investors.

Meanwhile, the Federal Reserve’s interest rate approach continues to generate investor apprehension. The path of inflation and the Fed’s next steps could greatly affect investors’ appetites for stocks. If the Fed keeps its tight policies longer than expected, equities, especially in growth sectors, may struggle. Conversely, if inflation eases, rate cuts could lift equities.

Corporate earnings will be crucial to watch in the upcoming quarters. First quarter results have been quite good for most of the companies we follow in the SmallCap Informer, but continued earnings growth is needed to support current valuations of many stocks, especially given all of the economic challenges companies are facing. And without the strength of the US consumer, many companies will struggle in the coming quarters.

The small-cap versus large-cap dynamic is, as always, an important battleground. Small-cap stocks, often aligned with domestic economic trends, could see improvements if the US economy continues to grow. They may benefit from lower interest rates and a focus on domestic markets to handle international trade issues. Deregulation and tax cuts could also help growth in sectors like industrials and financials, where small caps have a strong presence.

Many analysts expect a rebound for small-caps due to their valuation discounts and ongoing underperformance compared to historical trends. It is quite possible that small caps might achieve better earnings growth than large caps by year-end.

Looking ahead, the 2025 equity landscape will undoubtedly favor targeted individual stock selection strategies over random broad-based excitement around mega-cap and meme stocks. As always, company selection remains key to investing success. Many small-caps may flounder in a more restrictive business landscape, but those that can deliver superior margins and navigate the macro-economic minefields will continue to deliver desirable returns for focused investors.

US large-caps continue to have an advantage by virtue of sheer size and popularity, but a shift toward small caps and undervalued sectors like healthcare, consumer cyclicals, communications, or real estate may occur if the current Presidential administration’s geopolitical ambitions continue on their current pathway.

Remember, the US remains a growth engine, and small company stocks should remain a vital part of any investor’s long-term portfolio. But a shift towards value stocks is underway as a reaction to the overvaluation of many growth stocks. This trend bodes especially well for many of the companies tracked in the SmallCap Informer.

In this issue of the SmallCap Informer, we return to a previously-covered company that has defensive attributes that may appeal to some anxious investors but overall seems poised to deliver profits over the next few years that will drive the share price to new heights.

Stay the course!

• DOUG GERLACH

Subscribers can read Doug's complete commentary and the in-depth profile of our recommended small company stock in the current issue of the SmallCap Informer stock newsletter. Not a subscriber? Subscribe to the SmallCap Informer and get monthly small company stock recommendations and updated buy/sell prices for each of the 40+ high-quality small company stocks currently covered in the newsletter.